<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 8-K/A
Amendment No. 1
Current Report
Pursuant to Section 13 or 15(D) of
The Securities Exchange Act of 1934
Date of Report: August 9, 2000
---------------
Commission File Number: 0-23340
AMERICA SERVICE GROUP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0332317
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
105 WESTPARK DRIVE, SUITE 300
BRENTWOOD, TENNESSEE 37027
(Address and zip code of principal executive office)
(615) 373-3100
(Registrant's telephone number, including area code)
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<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
America Service Group Inc. ("the Company"), a Delaware Corporation,
hereby amends its Report on Form 8-K, dated July 14, 2000, relating to the
acquisition of Correctional Health Services, Inc. ("CHS") on May 31, 2000 (the
"acquisition"). The Company is filing this amendment for the purpose of
including the required financial statements and pro forma financial information
with respect to the acquisition in accordance with the requirements of Form 8-K.
(a) Financial Statements of CHS
The required audited financial statements of CHS as of and for
the year ended December 31, 1999, and the unaudited financial
statements as of and for the three months ended March 31, 2000,
are filed herewith.
(b) Pro Forma Financial Information
The required pro forma financial statements of the Company and its
subsidiaries, giving effect to the acquisition as if it had
occurred on March 31, 2000, as to the balance sheet, and on
January 1, 1999, as to the income statements, are filed herewith.
(c) Exhibits
2.1 Stock Purchase Agreement, dated as of April 24, 2000 between
Prison Health Services, Inc., a subsidiary of America
Service Group Inc., and the shareholders of Correctional
Health Services, Inc. is incorporated herein by reference to
the Company's Current Report on Form 8-K, filed July 14,
2000, Commission File No. 0-23340.
23.1 Consent of Arthur Andersen LLP.
99.1 Text of the press release, dated May 31, 2000, relating
to the completion of the acquisition of Correctional
Health Services, Inc. is incorporated herein by reference to
the Company's Current Report on Form 8-K, filed July 14,
2000, Commission File No. 0-23340.
2
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly authorized this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICA SERVICE GROUP INC.
/s/ BRUCE A. TEAL
---------------------
Bruce A. Teal
Executive Vice President & Chief
Financial Officer
Dated: August 9, 2000
3
<PAGE> 4
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
CORRECTIONAL HEALTH SERVICES, INC.
Report of Independent Public Accountants.................................... 5
Balance Sheet at December 31, 1999.......................................... 6
Statement of Operations for the year ended December 31, 1999................ 7
Statement of Shareholders' Equity for the year ended December 31, 1999...... 8
Statement of Cash Flows for the year ended December 31, 1999................ 9
Notes to Financial Statements............................................... 10
Condensed Balance Sheet at March 31, 2000 (unaudited)....................... 13
Condensed Statements of Operations and Shareholders' Equity for the three
months ended March 31, 2000 and 1999 (unaudited)......................... 14
Condensed Statements of Cash Flows for the three months ended
March 31, 2000 and 1999 (unaudited)...................................... 15
Notes to Condensed Financial Statements (unaudited)......................... 16
AMERICA SERVICE GROUP INC.
Pro Forma Condensed Consolidated Financial Statements (unaudited)........... 17
Pro Forma Condensed Consolidated Balance Sheet at March 31, 2000
(unaudited).............................................................. 18
Pro Forma Condensed Consolidated Income Statement for the year
ended December 31, 1999 (unaudited)...................................... 19
Pro Forma Condensed Consolidated Income Statement for the three
months ended March 31, 2000 (unaudited).................................. 20
Notes to Pro Forma Condensed Consolidated Balance Sheet (unaudited)......... 21
Notes to Pro Forma Condensed Consolidated Income Statements (unaudited)..... 22
</TABLE>
4
<PAGE> 5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Correctional Health Services, Inc.
We have audited the accompanying balance sheet of Correctional Health Services,
Inc. (a New Jersey corporation) as of December 31, 1999, and the related
statement of operations, shareholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Correctional Health Services,
Inc. as of December 31, 1999 and the results of its operations and its cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
April 10, 2000
5
<PAGE> 6
CORRECTIONAL HEALTH SERVICES, INC.
BALANCE SHEET
DECEMBER 31, 1999
(In thousands except share and per share data)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................................... $ 1,464
Accounts receivable ............................................ 1,517
Investments .................................................... 2,098
Prepaid expenses and other current assets ...................... 66
-------
Total current assets ................................... 5,145
Furniture and fixtures ........................................... 62
Office equipment ................................................. 84
Less accumulated depreciation .................................... (82)
-------
Net property and equipment ............................. 64
Other assets ..................................................... 16
-------
$ 5,225
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................... $ 313
Accrued expenses ............................................... 1,033
Income taxes payable ........................................... 193
-------
Total current liabilities .............................. 1,539
Deferred income taxes ............................................ 173
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $.01 par value, 2,500,000 shares authorized; no
shares issued or outstanding ................................. --
Common stock, $.01 and no par value, 10,000,000 shares authorized;
3,800,000 shares issued and outstanding ...................... 38
Additional paid in capital ....................................... 21
Unrealized gain on investments, net of tax ....................... 321
Retained earnings ................................................ 3,133
Total shareholders' equity .............................. 3,513
-------
$ 5,225
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
CORRECTIONAL HEALTH SERVICES, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(In thousands)
<TABLE>
<CAPTION>
<S> <C>
Contract revenues .................................... $ 16,621
Costs and expenses:
Cost of services .................................. 11,698
General and administrative ........................ 3,264
--------
Operating income .................... 1,659
Loss on sale of investments .......................... (59)
Interest income, net ................................. 69
--------
Income before income taxes .......... 1,669
Income taxes ......................................... 648
--------
Net income ........................................... $ 1,021
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
CORRECTIONAL HEALTH SERVICES, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
DECEMBER 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Unrealized
Additional Gain on
Common Paid-in Deferred Investments, Retained
Stock Capital Warrants Compensation Net of Tax Earnings Total
----- ------- -------- ------------ ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 $ 38 $21 $ 165 $ (92) $ 47 $2,112 $ 2,291
Comprehensive Income:
Net income -- -- -- -- -- 1,021 1,021
Increase in unrealized
gain on investments, net of tax -- -- -- -- 274 -- 274
-------
Total comprehensive income 1,295
Cancellation of warrants and
deferred compensation -- -- (165) 92 -- -- (73)
------ --- ----- ----- ---- ------ -------
BALANCE, DECEMBER 31, 1999 $ 38 $21 $ -- $ -- $321 $3,133 $ 3,513
====== === ===== ===== ==== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 9
CORRECTIONAL HEALTH SERVICES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
(In thousands)
<TABLE>
<CAPTION>
<S> <C>
Operating activities:
Net income .......................................... $ 1,021
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ........................................ 23
Amortization of deferred compensation ............... 5
Deferred income taxes ............................... (72)
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable ............................... (851)
Prepaid expenses and other ........................ 39
Increase (decrease) in:
Accounts payable .................................. (87)
Accrued expenses .................................. 670
Income taxes payable .............................. 193
-------
Net cash provided by operating activities ..... 941
-------
Investing activities:
Sales/maturities of investments ..................... 2,315
Purchases of investments ............................ (2,461)
Payments from notes receivable ...................... 16
-------
Net cash used in investing activities ......... (130)
-------
Financing activities:
Payments on note payable ............................ (24)
-------
Net increase in cash and cash equivalents ............... 787
Cash and cash equivalents, beginning of year ............ 677
-------
Cash and cash equivalents, end of year .................. $ 1,464
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE> 10
CORRECTIONAL HEALTH SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(In thousands, except share data)
1. BACKGROUND
Correctional Health Services, Inc. (the "Company") provides correctional
facilities with managed health care services. These services include the
delivery of a full range of health care services, management and cost
reduction/cost containment programs to adult and juvenile detention facilities.
The Company is 73% owned by a corporation which is 100% owned by the
Company's president.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
INVESTMENTS
Investments are carried at market value, and are classified as short-term or
long-term based on their maturity dates. At December 31, 1999, the Company's
short-term and long-term investments are classified as available for sale
pursuant to Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Unrealized
holding gains or losses associated with the available for sale investments are
presented as a separate component of shareholders' equity, net of tax. At
December 31, 1999, unrealized holding gains were $534.
At December 31, 1999, investments consisted of the following:
<TABLE>
<CAPTION>
Unrealized Carrying
Original Cost Gain/Loss Value
-----------------------------------------
<S> <C> <C> <C>
Stocks $1,258 $ 552 $1,810
Government Securities -- -- --
Corporate Bonds 280 (20) 260
Mutual Funds/Equities 26 2 28
------ ------- ------
$1,564 $ 534 $2,098
====== ======= ======
</TABLE>
All investments have been classified as short-term due to the availability
of such funds for current operations.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line and accelerated methods over five years. Expenditures for repairs
and maintenance are charged to expense as incurred.
10
<PAGE> 11
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred income tax assets
and liabilities are determined based on differences between the financial
reporting and income tax basis of assets and liabilities measured using enacted
income tax rates and laws that are expected to be in effect when the differences
reverse.
SUPPLEMENTAL CASH FLOW INFORMATION
For the year ended December 31, 1999, the Company paid $8 and $342 of
interest and income taxes, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that the carrying value of all financial instruments in
the accompanying financial statements is a reasonable estimate of fair value at
December 31, 1999.
REVENUE RECOGNITION
The Company engages principally in fixed price and comprehensive contracts
with correctional facilities. Fee income is recognized in the period that
services are rendered.
In certain comprehensive contracts, the Company is obligated to fund all or
a portion of costs related to certain third party services provided. At each
reporting period, the Company estimates its exposure for such claims and records
a liability for the services incurred but not billed. As of December 31, 1999,
the Company has recorded a liability of $167 which is included in accrued
expenses.
CUSTOMER CONCENTRATION AND MAJOR CUSTOMERS
The Company has several large contracts that account for a significant
portion of its revenues. Three separate contracts at December 31, 1999 from one
county represented 39% of revenues for the year ended December 31, 1999.
3. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases its facility an operating lease that expires in 2002. In
1999, rent expense was $94, net of rental income from subleases of $12.
Future minimum lease payments for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 94
2001 94
2002 94
--------
Total $ 282
========
</TABLE>
LITIGATION
The Company is party to various claims arising in the ordinary course of
business. Although the ultimate outcome of these matters is presently not
determinable, management, after consultation with legal counsel, does not
believe that the resolution of these matters will have a material adverse effect
on the Company's financial position or results of operations.
11
<PAGE> 12
EMPLOYMENT AGREEMENTS
The Company has employement agreements with certain of its key executive
management. The agreements provide for minimum levels of compensation during
current and future years and are subject to adjustment, as defined. The
agreements expire through 2003.
4. EMPLOYEE BENEFIT PLAN
Effective July 1, 1997, the Correctional Health Services 401-K Plan (the
"Plan") was established. Employees that have completed one year of service and
worked 1,000 hours are eligible to participate in the Plan. The Company, at its
discretion, may make matching contributions. Currently, the Company is matching
25% of the first 6% of a participant's compensation deferral. During 1999
matching contributions to the Plan were $31.
5. STOCK OPTIONS AND WARRANTS
On December 31, 1997, the Company granted a consultant warrants to purchase
213,975 shares of Common stock for services to be performed. The exercise price
of the warrants is $2.50 per share which was determined by the Board of
Directors as the fair value at the time of grant. The warrants vest ratably over
a 27 month period. The grant of such warrants is being accounted for as a
variable grant for accounting purposes and the value of such shares is adjusted
through the statements until exercise. In 1999, the Company cancelled such
warrants by entering into a one year service contract with the consultant.
6. RELATED PARTY TRANSACTIONS
During 1999, the Company borrowed and loaned amounts from/to its 73%
corporate shareholder (see Note 1). As of December 31, 1999, there was $1 due
from this shareholder. An employee of this 73% shareholder is paid by the
Company and the cost of such payroll and benefits are reimbursed by the
shareholder. During 1999, the Company paid bonuses to the President and majority
shareholder of approximately $1,432.
12
<PAGE> 13
CORRECTIONAL HEALTH SERVICES, INC.
CONDENSED BALANCE SHEET (UNAUDITED)
MARCH 31, 2000
(In thousands)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................... $1,329
Accounts receivable, net .......................... 1,321
Investments ....................................... 2,555
Prepaid expenses and other current assets ......... 496
------
Total current assets ................................ 5,701
Property and equipment, net ......................... 179
Other assets ........................................ 45
------
Total assets ........................................ $5,925
======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................. $ 133
Accrued expenses .................................. 2,081
------
Total current liabilities ........................... 2,214
Deferred income taxes ............................... 173
Commitments and contingencies
Preferred stock ..................................... --
Common stock ........................................ 38
Additional paid in capital .......................... 21
Unrealized gain on investments, net of tax .......... 380
Retained earnings ................................... 3,099
------
Total liabilities and shareholders' equity .......... $5,925
======
</TABLE>
See accompanying notes.
13
<PAGE> 14
CORRECTIONAL HEALTH SERVICES, INC.
CONDENSED STATEMENTS OF OPERATIONS AND SHAREHOLDERS' EQUITY
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(In thousands)
<TABLE>
<CAPTION>
Three months ended
March 31
-----------------------
2000 1999
---- ----
<S> <C> <C>
Contract revenues ................................. $ 4,326 $ 4,100
Costs and expenses:
Cost of services ............................... 3,032 2,848
General and administrative ..................... 1,547 491
------- -------
Operating income (loss) ........................... (253) 761
Gain (loss) on sale of investments ................ 185 (3)
Interest income, net .............................. 9 7
------- -------
Income (loss) before income taxes ................. (59) 765
Income tax expense (benefit) ...................... (25) 305
------- -------
Net income (loss) ................................. (34) 460
Shareholders' equity at beginning of period ....... 3,513 2,291
Increase (decrease) in unrealized gain (loss) on
investments, net of tax ......................... 59 (1)
------- -------
Shareholders' equity at end of period ............. $ 3,538 $ 2,750
======= =======
</TABLE>
See accompanying notes.
14
<PAGE> 15
CORRECTIONAL HEALTH SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(In thousands)
<TABLE>
<CAPTION>
Three months ended
March 31
---------------------
2000 1999
---- ----
<S> <C> <C>
Net Income (loss) .......................................... $ (34) $ 460
Adjustment to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation expense .................................... 6 6
Changes in operating assets and liabilities:
Accounts receivable, net ................................ 196 (922)
Prepaid expenses and other current assets ............... (430) 28
Accounts payable ........................................ (179) 343
Accrued expenses ........................................ 1,057 296
Income taxes payable .................................... (193) 166
------- -------
Net cash provided by operating activities ............ 423 377
Cash flows from investing activities:
Purchases of equipment ..................................... (120) --
Purchases of investments ................................... (1,338) --
Proceeds from the sale or maturity of investments .......... 910 356
------- -------
Net cash provided by (used in) investing activities.. (548) 356
Cash flows from financing activities:
Payments on capital lease .............................. (10) --
Payments on notes payable .............................. -- (16)
------- -------
Net cash used in investing activities ............... (10) (16)
------- -------
Net increase (decrease) in cash and cash equivalents ....... (135) 717
Cash and cash equivalents, beginning of period ............. 1,464 677
------- -------
Cash and cash equivalents, end of period ................... $ 1,329 $ 1,394
======= =======
</TABLE>
See accompanying notes.
15
<PAGE> 16
CORRECTIONAL HEALTH SERVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Correctional
Health Services, Inc. ("CHS") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three months
ended March 31, 2000, are not necessarily indicative of the results that may be
expected for the year ended December 31, 2000. For further information, refer to
the 1999 financial statements and footnotes thereto included herein.
2. COMMITMENTS AND CONTINGENCIES
GENERAL AND PROFESSIONAL LIABILITY RISKS
CHS maintains general and professional liability insurance coverage with an
external third party on a claims-made basis with limits of $3 million per
individual claim and $5 million in the aggregate. Deductibles under the policy
are not significant.
3. RELATED PARTY TRANSACTIONS
The Company paid bonuses to the President and majority shareholder of $996
and $60 for the three months ended March 31, 2000 and March 31, 1999,
respectively.
4. SUBSEQUENT EVENT
Effective May 31, 2000, America Service Group Inc. acquired the outstanding
stock of CHS for $15 million in cash and entered into non-compete agreements
with certain executives of CHS for $2 million in cash.
16
<PAGE> 17
AMERICA SERVICE GROUP INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On May 31, 2000, the Company acquired Correctional Health Services, Inc.
("CHS"). The following unaudited pro forma condensed consolidated balance sheet
as of March 31, 2000 gives effect to the acquisition of CHS by the Company as if
the transaction had been completed as of March 31, 2000. The following unaudited
condensed consolidated income statements for the year ended December 31, 1999
and the three months ended March 31, 2000, give effect to the acquisition of CHS
by the Company as if the transaction had been completed on January 1, 1999.
The pro forma condensed consolidated financial statements presented herein
do not intend to represent what the Company's financial position or results of
operations would have been had such transaction occurred at the beginning of the
periods presented or to project the Company's results of operations in any
future period. The pro forma results of operations, which do not consider
certain operational changes instituted by the Company upon the acquisition of
CHS, do not necessarily indicate the results of CHS' operations while under the
Company's ownership. The unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the Company's audited consolidated
financial statements included in its Annual Report on Form 10-K for the year
ended December 31, 1999, the Company's unaudited condensed consolidated
financial statements, included in its Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000, and the audited financial statements of CHS,
included elsewhere in this Current Report on Form 8-K/A. Certain
reclassifications have been made to CHS' historical financial statements to
conform to the Company's presentation.
17
<PAGE> 18
AMERICA SERVICE GROUP INC.
PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET (UNAUDITED)
MARCH 31, 2000
(In thousands)
<TABLE>
<CAPTION>
Acquisition Pro Forma
Historical Pro Forma Acquisition
ASG CHS Adjustments Consolidated
--------------------- ------------ -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 451 $ 1,329 $ 16,654 a)
(17,001) c) $ 1,433
Accounts receivable, net 39,124 1,321 40,445
Investments - 2,555 (2,555) b) -
Prepaid expenses and other current assets 7,956 496 8,452
Current deferred taxes 1,289 - 1,289
--------------------- ------------ -------------
Total current assets 48,820 5,701 (2,902) 51,619
Property and equipment, net 4,077 179 (102) b) 4,154
Deferred taxes 562 - 562
Cost in excess of net assets acquired, net 58,664 - 15,423 c) 74,087
Other assets 667 45 (29) b)
347 a)
2,000 c) 3,030
--------------------- ------------ -------------
Total assets $ 112,790 $ 5,925 $ 14,737 $ 133,452
===================== ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,668 $ 133 $ 13,801
Accrued expenses 26,356 2,081 1,432 c) 29,869
--------------------- ------------ -------------
Total current liabilities 40,024 2,214 1,432 43,670
Non-current portion of accrued expenses 3,097 - 3,097
Long-term debt 37,200 - 17,001 a) 54,201
Commitments and contingencies
Mandatory redeemable preferred stock 12,380 - 12,380
Mandatory redeemable common stock 1,842 - 1,842
Deferred income taxes - 173 (158) b) 15
Common stock 37 - 37
Net assets - 3,538 (2,528) b)
(1,010) c) -
Additional paid-in capital 12,863 - 12,863
Stockholders' notes receivable (1,075) - (1,075)
Retained earnings 6,422 - 6,422
--------------------- ------------ -------------
Total liabilities and stockholders' equity $ 112,790 $ 5,925 $ 14,737 $ 133,452
===================== ============ =============
</TABLE>
See accompanying notes.
18
<PAGE> 19
AMERICA SERVICE GROUP INC.
PRO FORMA CONDENSED CONSOLIDATED
INCOME STATEMENT (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(In thousands except for share data)
<TABLE>
<CAPTION>
Acquisition Pro Forma
Historical Pro Forma Acquisition
ASG CHS Adjustments Consolidated
--------------------- ------------ -------------
<S> <C> <C> <C> <C>
Healthcare revenue $ 272,926 $ 16,621 $ 289,547
Healthcare expenses 245,485 11,709 257,194
---------------------- -------------
Gross margin 27,441 4,912 32,353
Selling, general and administrative expenses 12,335 3,289 (60) c) 15,564
Depreciation and amortization 3,666 23 971 a) 4,660
---------------------- ------------ -------------
Income from operations 11,440 1,600 (911) 12,129
Interest, net (3,709) 69 (1,683) b) (5,323)
---------------------- ------------ -------------
Income before taxes 7,731 1,669 (2,594) 6,806
Provision for income taxes 3,091 648 (953) d) 2,786
---------------------- ------------ -------------
Net income 4,640 1,021 (1,641) 4,020
Preferred stock dividends 2,312 - 2,312
---------------------- ------------ -------------
Net income attributable to common shares $ 2,328 $ 1,021 (1,641) $ 1,708
====================== ============ =============
Net income per common share:
Basic $ 0.64 $ 0.47
=========== =============
Diluted $ 0.60 $ 0.44
=========== =============
Weighted average common shares outstanding:
Basic 3,613,000 3,613,000
=========== =============
Diluted 3,877,000 3,877,000
=========== =============
</TABLE>
See accompanying notes.
19
<PAGE> 20
AMERICA SERVICE GROUP INC.
PRO FORMA CONDENSED CONSOLIDATED
INCOME STATEMENT (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(In thousands except for share data)
<TABLE>
<CAPTION>
Acquisition Pro Forma
Historical Pro Forma Acquisition
ASG CHS Adjustments Consolidated
--------------------- ------------ -------------
<S> <C> <C> <C> <C>
Healthcare revenue $76,169 $ 4,326 $ 80,495
Healthcare expenses 68,626 3,032 71,658
--------------------- -------------
Gross margin 7,543 1,294 8,837
Selling, general and administrative expenses 3,241 1,356 185 c) 4,782
Depreciation and amortization 977 6 243 a) 1,226
--------------------- ------------ -------------
Income from operations 3,325 (68) (428) 2,829
Interest, net (498) 9 (410) b) (899)
--------------------- ------------ -------------
Income before taxes 2,827 (59) (838) 1,930
Provision for income taxes 1,132 (25) (310) d) 797
--------------------- ------------ -------------
Net income 1,695 (34) (528) 1,133
Preferred stock dividends 163 - 163
--------------------- ------------ -------------
Net income attributable to common shares $ 1,532 $ (34) (528) $ 970
===================== ============ =============
Net income per common share:
Basic $ 0.41 $ 0.26
========== =============
Diluted $ 0.32 $ 0.21
========== =============
Weighted average common shares outstanding:
Basic 3,726,000 3,726,000
========== =============
Diluted 5,346,000 5,346,000
========== =============
</TABLE>
See accompanying notes.
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AMERICA SERVICE GROUP INC.
NOTES TO PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
a) Reflects the borrowing by ASG of approximately $17 million under the
Company's Credit Facility net of the payment of approximately $347,000
in deferred financing costs to finance the acquisition of CHS.
b) Reflects the elimination of certain CHS assets and liabilities not
purchased by ASG including short-term and long-term
available-for-sale investments retained by the CHS shareholders of
approximately $2,584,000, the deferred income tax liability
associated with the aforementioned investments of approximately $158,000
and certain duplicative computer equipment written off at the date of
acquisition of approximately $102,000.
c) Reflects the purchase of CHS and the purchase price allocation to
adjust assets purchased and liabilities assumed to fair value and to
record intangible assets as follows:
<TABLE>
<S> <C>
Net liabilities acquired $ (421,860)
Other intangibles - non-compete agreements 2,000,000
Excess purchase price over net assets acquired 15,423,110
-----------
Cash paid to CHS shareholders $17,001,250
===========
</TABLE>
The net liabilities acquired include an adjustment to accrued expenses
of approximately $1,432,000 comprised of a net working capital
settlement payment due to the CHS shareholders of $932,000 for the
excess of the CHS working capital at March 31, 2000 (exclusive of
investments not acquired) over zero and $500,000 accrued for
transaction costs, including legal fees and other closing costs,
accounting fees, and travel costs.
The allocation of the purchase price to property and equipment, the fair
value of certain liabilities assumed, excess purchase price over net
assets acquired and non-compete agreements is based on the Company's
preliminary valuations. To the effect final valuations differ from these
preliminary estimates, the purchase price allocation and related useful
lives or amortization periods will be adjusted accordingly.
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AMERICA SERVICE GROUP INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED INCOME STATEMENTS
a) Reflects the amortization of the excess purchase price over net assets
acquired (amortization period of 20 years) and other intangible assets
(amortization period of 10 years).
b) Reflects the interest expense related to the debt incurred to finance the
acquisition (using an interest rate of 8.9%), interest expense associated
with the amortization of the deferred financing costs incurred to fund
the acquisition (amortized over 45 months to the maturity of the Credit
Facility), and the elimination of interest income on investments retained
by the CHS shareholders.
c) Reflects the elimination of gain (loss) on investments included as
selling, general and administrative expenses not purchased by ASG and
certain other costs related to maintaining such investments.
d) Reflects the inclusion of the income tax benefit based on the combined
federal and state statutory rate of 43.0% applied to pre-tax net income
inclusive of pro forma adjustments.
22
